State regulators are cracking down on insurance companies that are pushing banks, brokerages, and agents to sell a newfangled and increasingly popular fixed annuity.

The Illinois Department of Insurance toughened its product approval requirements two weeks ago for so-called index annuities, which link investment performance to the Standard & Poor's 500. Oklahoma did the same in October, and North Dakota forbade companies to cross its borders with that product nearly a year ago.

"It's a complicated product that the people who buy it and the agents who sell it don't understand," said Daniel J. Keating, a life and health actuary at the Oklahoma Insurance Department.

Regulators are tightening their grips on approval procedures just as banks are beginning to hear pitches for the product from as many as 60 companies. Insurance sales executives say such big names as BankAmerica Corp., First Bank System Inc., KeyCorp, and Comerica Inc. have put the product on their menus.

Index annuities have only been around for two years, but sales are starting to take off, according to Eric Sondergeld, a research actuary with the Life Insurance Marketing Research Association, Windsor, Conn. The products now account for a small slice of fixed-annuity sales, but some people think they could eventually top 30%, he said. Thus insurance companies are tripping over one another in the rush to bring them to market.

Insurance sales executives fear more states are going to jump on the bandwagon and impose even stricter regulations. The National Association of Insurance Commissioners is studying whether it should draft separate regulations for the product.

"Any number of states are going to say this is not a typical fixed annuity, it's a security," said John Philip Sousa 4th, president of Sun America Inc.'s financial institutions division. "They're wrong."

Some bankers have already agreed with regulators. TCF Financial Corp. decided a few years ago that these products are securities "disguised as fixed annuities," said Mary Sipe, president of the Minneapolis thrift company's insurance subsidiary.

"We like to keep our products simple to sell and simple to understand, and those products did not qualify," she said.

Index annuities are designed as fixed annuities, guaranteeing principal and a rate of return, generally 3%. But the added feature is that they try to take advantage of the stock market by mimicking the S&P.

Regulators now want extensive disclosure requirements. They are requiring insurance companies to file with their agencies marketing and advertising materials and descriptions of underlying investments and to reveal levels of reserves.

"On the whole the requirement is tougher than is posed on typical fixed annuity or life products," said Larry Gorski, a life insurance actuary with the Illinois Department of Insurance.

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